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krause2

would you take more risk by correlating your asset returns with your pension returns or would that be considered less risky?

According to Schweser its less and I fail to see the reasoning. If you have a low risk tolerance, wouldnt you want to have less correlation between your pension returns and operations returns? If operations do poor, your pension would do well and not require a contribution. If operations do well, you have enough to offset the decline in the pension by making additional contributions.

Schweser says " a high correlation of pension asset returns with a firms operations indicates a low risk tolerance. For example, the ability of the firm to make contribution will be low at the same time that the plan is underfunded" Question 2, pg 76 Book 2

Am I missing something or is this errata?

Zestt

nevermind. they mean a high correlation with a pension liability which makes sense.